An investor survey found that the luxury sector is considered most at risk for reputational damage from overseas manufacturing. Investors view reputational risk as equally important to cost when evaluating luxury sector investments. Companies are advised to take a holistic view of their manufacturing strategy to balance brand benefits, quality control, and reputational risks of domestic vs. overseas production. Moving manufacturing entirely domestic is not a simple solution given risks like higher costs and protecting intellectual property.

1. LUXURY OUTLOOK 2013
Manufacturing in Focus

2. INTRODUCTION
The way in which investors are assessing the risks and benefits of
manufacturing overseas is changing, with cost no longer eclipsing all other
factors that influence decision-making. This new reality is especially true for
the luxury sector, where consumer expectations are particularly high and the
erosion of the perceived quality of a product or brand can have a material
impact on the business.
Our survey of more than 200 U.S.-based investment professionals shows that investors rank the luxury
sector as more exposed to overall reputational risk from overseas manufacturing than six other sectors.
Moreover, a majority of investors place as much emphasis on reputational risk as they place on cost
when making luxury sector investment decisions.
These results suggest that luxury companies should take a holistic look at their manufacturing operations
to determine the right geographic balance for their brand. Convincing investors that a thoughtful strategy
is in place requires identifying where product advantages can be realized from manufacturing at home,
and where the cost-benefit of producing overseas may outweigh the reputational risk. Regardless of the
precise market mix, it is important to articulate the benefits of products made in home markets while
proactively minimizing reputational risk in complex political and social ecosystems in other corners
of the globe.
Susan Gilchrist
Group Chief Executive, Brunswick Group LLC

3. As investors place equal emphasis on reputational risk and
cost, companies should take a holistic view of their
manufacturing strategies to determine where significant brand
or product advantages can be realized from manufacturing at home,
and where the cost-benefit of producing overseas may outweigh the
reputational risk. A thoughtful strategy that considers
the right balance for your brand will be viewed by
investors as an asset rather than a liability.

4. research Implications
Investors want to know that companies are deriving brand and business benefits when manufacturing
at home and taking proactive steps to manage reputational risk overseas.
At home
• Define excellence. Tout the benefits of highly skilled craftsmen that deliver superior quality products.
• Display your heritage. Associations with strong heritage can deliver brand benefits and marketing
opportunities that increase customer loyalty and perceived value.
• Protect your assets. An established and familiar legal system allows for close control over
intellectual property.
Overseas
• Be your own watchdog. Devote more resources and have an active presence in areas where risk
is higher to ensure that quality and safety are tightly controlled.
• Build relationships with a cross section of stakeholders. Regularly engage with local NGOs,
government and labor groups to understand the complexities of the market, better anticipate issues
and solidify relationships before an issue arises.
• Engage wisely. Assess the landscape of stakeholders to understand the centers of influence and
identify contentious players.
• Collaborate with peers. Working together facilitates a more productive dialogue with local
stakeholders and gives you a stronger collective voice.

5. Supply chain risk is a top consideration for investors
and a majority place equal weight on
reputational risk and potential cost savings
associated with overseas manufacturing when
considering luxury sector investments.

6. Factors Driving Investment Behavior
Over the last 12 months, have you Commodity Prices
made an investment decision about
a company based on any of the Eurozone Crisis
following factors? Supply Chain Risk
China Not Delivering on Growth
Sector Fragmentation
Climage Change
Which ONE do you consider MORE Potential cost savings
when making investment decisions? for luxury goods
companies as they
move manufacturing
operations overseas
Potential reputational
harm for luxury goods
companies as they move
manufacturing operations
overseas

7. Investors believe luxury is among the top sectors
exposed to significant risk on the issues of quality control
and protection of intellectual property rights, and is
considered most exposed of all sectors on overall
reputational risk when manufacturing overseas.

8. Risk Exposure for the Luxury Sector
Which ONE of the following sectors is exposed to the most ______ through overseas manufacturing?
QUALITY CONTROL RISK INTELLECTUAL PROPERTY RISK REPUTATIONAL RISK
Healthcare Products Technology Consumer Goods Luxury Consumer Goods
Luxury Consumer Goods Luxury Consumer Goods Healthcare Products
Technology Consumer Goods Healthcare Products Consumer Durable Goods
Consumer Durable Goods Consumer Durable Goods Technology Consumer Goods
Non-Luxury Consumer Goods Heavy Industrial Goods Non-Luxury Consumer Goods
Heavy Industrial Goods Non-Luxury Consumer Goods Heavy Industrial Goods

9. Eighty percent of investment professionals see
the reputational risk from overseas
manufacturing beginning to outweigh
potential cost benefits, but moving manufacturing
to home markets is not a silver-bullet solution for
the luxury sector.

10. On-Shore vs. Off-Shore Manufacturing
Do you agree or disagree with the following? disAgree
The reputational risk associated with
off-shore manufacturing is beginning
to offset the cost savings for
luxury goods manufacturers...
Agree
What is the biggest risk
that luxury goods companies
face when manufacturing
in U.S. and European
home markets?

11. “[Luxury companies] have got to protect their
name…that is the key to their competitive
success. I think they just don’t recognize the breadth
of some of the threats that they can face.”
— University Academic on Luxury Sector Risk

12. ABOUT BRUNSWICK
Brunswick Group is an international corporate communications partnership that helps businesses and other organizations
address critical communications challenges. We started in London in 1987 and have grown organically into a private
partnership of 21 cities around the world. Today we have around 90 Partners – senior professionals from a range of industry
backgrounds – and a total staff of more than 600. We offer our clients a range of specialist capabilities – by issue, transaction,
sector or audience – designed to deliver the desired outcome. Brunswick operates as a one-firm firm, offering a seamless
service across international boundaries.
www.brunswickgroup.com
Read The Brunswick Review, a journal devoted to communications and corporate relations,
at www.brunswickgroup.com/review
ABOUT BRUNSWICK INSIGHT
Brunswick Insight is the Group’s opinion research practice, specializing in assessing global business issues and corporate
reputation. Operating globally, we use a range of qualitative and quantitative research techniques in order to help companies
and organizations inform and measure their communications and policy strategies.
ABOUT THE SURVEY
Brunswick Insight fielded this survey among 205 U.S.-based professional investors on both the buy-side and sell-side at
investment banks, hedge funds, and private equity firms. The data was collected online between January 3rd and 7th, 2013.
The survey has an overall margin of error of ± 6.8% at the 95% confidence interval.

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BRUNSWICK OFFICES

14. For more information, contact:
Susan Gilchrist, Group Chief Executive
sgilchrist@brunswickgroup.com
+1 212 333 3810
Katie Foley Ioanilli, Director, New York
kioanilli@brunswickgroup.com
+1 212 333 3810
Sparky Zivin, Director, Brunswick Insight, Washington, DC
szivin@brunswickgroup.com
+1 202 393 7337